Corporate Counsel Daily, Ex-CEO sentenced to 3.5 years in novel prosecution of 10b5-1 insider trading, (Jun 25, 2025)
Law Firms Mentioned:King and Spalding LLP
The Department of Justice said the case is the first insider trading prosecution based exclusively on use of Rule 10b5-1 trading plans.
The former CEO of a healthcare company was sentenced to 3.5 years in prison and ordered to pay $17.95 million for engaging in an insider trading scheme using Rule 10b5-1 stock trading plans. The sentence follows Terren Peizer’s 2024 conviction of securities fraud and insider trading over the use of 10b5-1 plans to avoid losses of more than $12.5 million (U.S. v. Peizer, No. 2:23-CR-89 (C.D. Cal. Jun. 23, 2025)).
“Terren Peizer betrayed the trust of Ontrak’s investors, trading on inside information to offload company stock before a substantial price decline,” Matthew R. Galeotti, Head of the Justice Department’s Criminal Division, said in a press release.
Peizer indicated he will appeal.
“As the Court is well-aware, this case was based on a novel, first-of-its-kind prosecution theory that raised hotly contested questions of law and fact, for which there was not always controlling precedent or a clear-cut answer,” Peizer’s counsel wrote.
Insider trading using 10b5-1 plans. Peizer was the former CEO, executive chairman, and chairman of the board of directors of Ontrak Inc., a publicly traded health care company. According to the DOJ, Peizer created two 10b5-1 plans while in possession of material non-public information that Ontrak was in serious jeopardy of losing its then-largest customer, Cigna.
First, he sold 585,000 shares under a 10b5-1 plan that he created in May 2021 after learning that the relationship between Ontrak and Cigna was seriously deteriorating. Then, in August 2021, he created a second 10b5-1 plan the same day he learned from Ontrak’s lead negotiator that Cigna was likely to formally terminate its relationship with Ontrak. Together, sales under these plans avoided losses of $12,711,324.
Peizer lied repeatedly to perpetuate the scheme, the DOJ said. He lied to the company on preclearance forms, to his broker about not having inside information, to the SEC in Forms 144, and to the market by including false 10b5-1 plans in his Schedule 13D filings.
The DOJ also noted that Peizer refused to engage in any “cooling-off” period despite warnings from multiple brokers, Ontrak’s Insider Trading Compliance Officer, and several attorneys. He contacted multiple brokers to find one that did not require a cooling-off period so he could sell as soon as possible.
Conviction and sentence. After a 10-day jury trial in 2024, Peizer was convicted of one count of securities fraud and two counts of insider trading based on the misuse of 10b5-1 plans.
Peizer was sentenced to 42 months in prison and was ordered to pay a fine of $5.25 million and forfeit more than $12.7 million in ill-gotten gains.
Abuse of 10b5-1 plans. The case was brought under a DOJ data-driven initiative to identify executive abuses of 10b5-1 trading plans.
The DOJ said the need for deterrence was particularly acute due to Peizer’s use of Rule 10b5-1 trading plans—a tool designed to prevent unlawful insider trading and ensure investor confidence—to engage in insider trading.
“Corporate executives should be on notice that efforts to conceal misconduct through the tools created to protect them (and the markets) will come at a significant cost and with severe consequences,” DOJ attorneys wrote.
This is case No. 2:23-CR-89.
Judge: Fischer, D.
Attorneys: Matthew Shawn Reilly, U.S. Department of Justice, for the US. David Karl Willingham (King and Spalding LLP) for Terren Scott Peizer.
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